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The restaurant industry 'has been underserved by great technology,' Toast CEO says

Toast CEO Chris Comparato joins Yahoo Finance Live to discuss the restaurant industry recovery, digital transformation, and the outlook for Toast.

Video Transcript

JULIE HYMAN: Restaurants are back, at least the ones that got through the pandemic. A new survey out from restaurant tech platform Toast shows the gross merchandise volume at its customers rose by almost 6% last quarter compared with the fourth quarter of 2019. And Toast CEO Chris Comparato joins us now.

And, Chris, obviously, it has been a tough slog for the restaurant industry, so it's encouraging to see these kinds of numbers. And I wonder for the ones that made it through and are now sort of getting back to those levels, was it luck that got them through? Was it being able to get some of that government aid? What sort of went right for the survivors in the restaurant industry?

CHRIS COMPARATO: Yeah, so, first off, Julie, thanks for having me on. It's a pleasure to be here today. When you zoom out, this is an industry that's been going through digital transformation for the past 10 years, and, certainly, the last two years have been incredibly difficult. But it's really an industry that's been underserved by great technology.

And then if you zoom into the past two years, restaurants have gone through a few different phases. They've gone from a crisis to a phase of survival, to then a phase of recovery, and then a phase of thriving. And what we're showing in our report today is that restaurants running our Toast technology platform, which is an end-to-end platform, almost like the operating system for the restaurant, those restaurants are starting to thrive, so they're starting to come into 2022 in a really strong position.

And if I look at the past two years, a few of the things that they've done well is they've adapted incredibly well. Number one, they've been able to optimize their revenue and drive more revenue channels into their kitchen. And it's all about sales, and it's all about same-store sales. And if you look at those restaurants, they're doing 6% better than they were doing in Q4 of 2019.

The second thing that these restaurants are doing incredibly well is they're streamlining their operations. Right now, it's all about doing more with less given the labor challenges, given inflation, and these restaurants have really adapted their methodologies within their four walls to run a much more efficient operation. And then, number three, they're laser focused on food cost optimization, and that includes their menus, what's profitable on their menus, what are the food costs and inventory management behind their menus.

But when you put those three things together, this has allowed restaurants running Toast to really navigate the pandemic quite well and, in fact, be ready for what I call a new era of hospitality. So as 2022 evolves, we're all getting back into restaurants, and I think some of these restaurants are well poised for the consumer demand that lies ahead.

BRIAN SOZZI: Chris, we've talked to a lot of players in the restaurant industry, and I'll say for the team that we've been blown away by what they've been saying about price increases they are taking to offset inflation. Chipotle is starting to price in line with CPI. That's close to 10%. The cost of a McDonald's Big Mac up high single digit percentage. How long could the recovery continue in the restaurant space if they're going to price at these levels?

CHRIS COMPARATO: That's a great question. And, listen, I mean, we advocate for restaurants to adjust their menus, adjust their prices. We believe consumer demand is high, so we think consumers can absorb some of those price increases.

But that being said, I think it's more important to make sure that restaurants are opening up more revenue channels, so driving off premise, for example, is critically important. If you look at how takeout and delivery has flourished in the past two years, that's here to stay, and that's about 20% of the restaurant volume in total. So we think that trend will continue.

We also think the trend of turning tables faster through mobile ordering and ordering and paying at the table from the consumer's device, that's a trend that's going to stick and continue. So we actually think that, aside from pricing, restaurants can do a better job at driving revenue.

JULIE HYMAN: Let's talk about guys driving revenue for just a moment or maybe more to the point of what the market is focusing on driving, profitability. I know you guys are in an investment phase, and that sort of phase that you're in is something that the stock got punished for when you reported earnings last week. When do you expect to sort of-- how long do you think the investment phase is going to last? When do you think you get to more of a sort of profitability phase of the business?

CHRIS COMPARATO: Yeah, it's a great question. I mean, if you zoom out again, this is an industry that's in the early phases of digital transformation. So for us today, we're only 7% of the total addressable market. So 860,000 locations across the US, we're only in 7% of those locations and then 22 million locations internationally. So I think we're in the early innings of our growth cycle as a company, and that's why we have this growth mindset because there is a lot to do to make sure that we can scale from not just tens of thousands of restaurants on the platform but hundreds of thousands of restaurants on the platform.

That being said, we understand the market dynamic. We know the investor sentiment. Profitability is always top of mind for us as a management team and as a board, and I think that's going to come over time. So investors should expect us to drive towards profitability over time, but we're not going to yank the Toast engine towards profitability immediately when we know that there's so much growth ahead. And the number one goal is to acquire market share and then continue to build out that platform so that it serves restaurants of all different types.

BRIAN SOZZI: One thing we've heard a lot from the restaurants too, Chris, is the labor shortage. It continues. What are some of the creative ways the companies you work with are trying to overcome those?

CHRIS COMPARATO: Yeah, it's a great question. So it's all about doing more with less. So when we look at the waitstaff within restaurants, how do we enable them to handle and produce more orders, make sure that the kitchen is highly productive, and do that with less staff? One of the statistics that we pushed out today is that if you look at a typical Toast restaurant in a typical employee hour, the typical employee at a Toast restaurant is producing 4.5% more orders per hour than in 2020. So we love that statistic because it shows that order transactions are being produced at a higher clip per employee per hour.

So the ways that restaurants are accomplishing that are twofold. Number one, they're enabling consumers to do more with their personal device. So technologies, like our solution around order and pay at the table, allow the guests to control their ordering, keep the tab open, keep the kitchen busy, and then have a delightful guest experience.

Number two, we're arming waitstaff with the Toast Go device, which allows them to turn tables faster and handle more tables, so we're seeing examples where restaurants are accomplishing more orders with less staff. And then in the kitchen, when we automate the kitchen with kitchen display systems, the kitchen is becoming more productive because they can hum at the next level without handling paper and printers. So this whole operation is really a methodology. We call it the steps of service methodology. And when restaurants adopt this methodology, we're finding that their staff are highly productive, and that allows the guests to also have a great experience.

JULIE HYMAN: Chris, thanks for being here this morning. Chris Comparato is CEO of Toast. Appreciate your time.